Always pay yourself first

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When you receive a paycheck, who vì chưng you pay first? If you’re like most Americans, you’re probably paying everyone else first—your rent/mortgage, groceries, utilities, car payment, insurance, etc. Then, once you’re done paying all those bills, you stick whatever you have left (if anything) into savings—that’s the classic “paying yourself last” scenario. Then you patiently await your next paycheck & repeat the process all over again. That’s the great American Rat Race.

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But if you ever want to get out of the Rat Race, then I’m here lớn tell you you’re doing it wrong.

The philosophy of paying yourself first came from George Clason’s book, “The Richest Man in Babylon”, which was written nearly a century ago. And, despite how the world has changed, its message still holds true today.

I remember when Robert and I were younger; we didn’t have a lot of money, and often found ourselves living paycheck to paycheck. In order to lớn take steps towards our future, we hired our bookkeeper, Betty. We did this because we knew how easy it would be to lie to lớn ourselves about our financial situation, hoping that our money problems would work themselves out. We wanted real accountability! (No pun intended).

Betty helped us see our finances for what they really were. The first thing we realized was that we were not putting aside anything for our future. Every penny we made was going towards our bills.

People who choose khổng lồ pay themselves first allocate money to lớn the asset column of their balance sheet before they’ve paid their monthly expenses. Essentially, you mix aside a specific amount of money right off the bat, and use what’s left lớn live. That is how wealth grows.

If you aren’t doing this now, have no fear—it’s never too late to lớn ditch your bad habits. Learning to manage your money properly now with a “pay yourself first” mindset will ensure you have it to lớn invest later.

How lớn pay yourself first

With Betty’s help, we realized we had to lớn change the way we were handling our finances. So, we decided khổng lồ pay ourselves first, và then pay our creditors.

Each month, whether it made sense or not, we put aside a phối sum of money into our asset column. We treated it just like an expense. In fact, we treated it as our most important expense. Even during times when my cash flow was less than my bills, I still paid myself first. Và you can too. How?

10% Investment - Each month we phối aside 10 percent of our income for great opportunities. My first $5,000 investment in a little rental house in Portland was paid just this way.

10% Savings - Each month we set aside 10 percent of our income for emergencies và special opportunities.

10% Charity or Tithing - & each month we mix aside 10 percent of our income for giving to charity or tithing because we believe in giving back và that you must give in order khổng lồ receive.

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Adjust your habits

First, don’t get into large debt positions that you have khổng lồ pay for. Keep your expenses low. Build up assets first. Then buy the big house or nice car later.

Second, when you come up short, go ahead & let the pressure build — don’t dip into your savings or investments as a bailout. You see, poor people have poor habits. Và one of those poor habits is dipping into savings lớn pay bills. Use the pressure lớn inspire your financial genius lớn come up with new ways of making more money, & then pay your bills with that. Bonus: You will have increased your ability lớn make more money and boosted your financial intelligence.

So let’s say you’re taking trang chủ about $4,000 a month. If you first pay yourself $500, then you have $3,500 left for living expenses. After one year’s time, you’ll have saved $6,000. You can even set this up automatically with your bank, lớn remove the temptation of spending the money.

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But how can I save when I have debt?

Brace yourselves for this fact: Robert và I had about $400,000 of debt when we started our lives together in 1984. But by 1990 we were debt free. Here’s how we did it, and thus, here’s my advice for you:

Step 1: Immediately stop accruing bad debt. Stop adding khổng lồ your credit thẻ balances.

Step 2: Make a menu of all the debt you owe (credit card, school loans, car loans, IOUs to people, your personal residence, etc.) so that everything is clearly organized and accounted for.

Step 3: Hire yourself a “Betty” (a bookkeeper), so you can’t hide from the truth—he or she will keep meticulous records each month, so you always know where you stand (even if you don’t want to lớn admit it).

Step 5: Determine the order for paying off each debt by starting with the lowest & working toward paying that off. For all other debt, just pay the minimum amounts due each month. Once your first (lowest) debt is paid off, then work on the next debt (second lowest) và so on.

Step 6: Stay the course! Remember, you have to stick to lớn this plan every month. If you say lớn yourself, “I’ll go off the plan just this month,” then you won’t form the habit & your debts will not go away.

Clarity is key

Some people get the wrong idea when they hear the term, “Pay yourself first.” They actually hear, “Treat yourself first.” They think it means splurging on things frivolously.

Instead, the purpose was to make a conscious và purposeful contribution to our asset column so that we could invest our money and make it work for us.

This helped us develop the golden financial rule for us as a couple: Any money in the asset column stays in the asset column.

We follow this rule religiously lớn this day. We never move any of our money from our asset column into other areas (such as lớn pay expenses or lớn buy liabilities lượt thích cars và vacations). This has allowed us to lớn build our asset column exponentially over the years.

For instance, I started investing by purchasing a small home in Portland, Oregon many years ago. By keeping the money earned from that investment in my asset column, I’ve been able to build from that foundation to lớn now owning thousands of apartment units across the United States. All it took was discipline (and hard work!).

Buy assets to enjoy the finer things

This doesn’t mean we don’t enjoy the finer things in life. What it does mean is that if we want something nice for ourselves, if we want khổng lồ treat ourselves, we find ways lớn make the money that doesn’t mean raiding our asset column. In short, we find assets that produce enough income through cash flow to lớn cover our expenses and our luxuries.

Robert, for instance, loves his cars. A while back, he wanted to lớn buy his dream Porsche. So, I challenged him to find an asset that would cover the cost of the car. Robert got lớn work và found a great mini storage investment that covered the cost of the oto with monthly cash flow.

The upside was that not only did we have the oto that Robert wanted, but we also grew our asset column. A few years later, the Porsche was paid for and we still had our mini-storage investment making us money each month. Eventually, we sold that mini-storage and rolled the money into a great apartment property.